KNOWN UNKNOWNS: WHY THE TREASURY’S CRYSTAL BALL NEEDS A POLISH

By David Price

Unlike so many Conservative MPs, former chancellor Kenneth Clarke’s pronouncements have a habit of cutting through. Thanks to his sardonic humour and slightly dishevelled look, the crumpled-suited Tory grandee somehow seems more authentic than many of his on-message colleagues who are always parroting the official party line.

Regardless of party, British voters like politicians who speak their minds, and tend to pay closer attention. Clarke’s quip about Theresa May being “a bloody difficult woman” could well have won her the Conservative leadership, had Andrea Leadsom not flounced out of the race. Yet one thing that he blurted out on live TV during the 2016 EU referendum campaign, seemed to fall on deaf ears…

It happened on the day that George Osborne launched his “shock” projections for the British economy, should British voters dare to vote to leave the European Union. He and three other Remain-supporting colleagues stood pompously behind lecterns to make their pitch to the nation, warning that under the “severe shock scenario” the mere act of voting to leave the EU would result in a six percent drop in British GDP. Wow!Live on air soon after however, Ken Clarke had one of his famous moments. Asked by the interviewer if he believed Osborne’s numbers, he replied that, “well everybody knows that even when the Treasury is trying, it never gets the right answer…”

It was a telling one-liner from a man who should know – implying both that HM Treasury wasn’t actually trying to get the right answer, and that it couldn’t even if it wanted to. His point was serious though, because it has a consistent track record of getting things wrong. The Treasury’s growth predictions after the Pound crashed out of the Exchange Rate Mechanism in 1992 for example, were wildly pessimistic. A decade or so later, it was a strong advocate of Britain joining the Euro. In other words, the Treasury's analysis always seems to suit its preference – a textbook example of what political scientists call ‘confirmation bias’.As it transpired, Clarke was right about Osborne’s Brexit forecasts – which said that under the “severe shock scenario” our economy would shrink by dramatically in 2017, unemployment would leap by 820,000 and house prices would fall by 18%. Despite being reported as fact by much of the media at the time, these Project Fear projections proved to be wildly inaccurate.

Now though – just eighteen months later – the Treasury’s Brexit Impact Assessments have been leaked and Project Fear: The Sequel is upon us. The continuity Remain campaign – now called Open Britain – is ecstatic. For them it’s a welcome respite after months of economic good news (i.e. unemployment rate the lowest since 1975, factory output up 2.8% year-on-year, exports up 11.3%, etc.). Here’s an official (well, almost) government document that “proves” they’re right. “This makes clear that the regions who voted most for Brexit are going to be the hardest hit”, said the BBC, ITV and Sky with ill-concealed glee.

Hang on though, what about the multitude of free trade deals that the UK can now do with eighty-five percent of the world’s economy outside the EU? What growth models were used by the Treasury, and which assumptions made? How does the anyone know the price of oil in 2025, let alone whether a Eurozone debt crisis is coming? That’s one heck of a crystal ball you’ve got there, guys!

The truth is that these impact assessments are misleading at best and naked political propaganda at worst – designed to overturn the biggest democratic vote in our nation’s history. They’re from a Treasury team that has a gold-plated, copper-bottomed record of getting its sums spectacularly wrong.

Einstein once said that the definition of madness is doing the same thing twice and expecting a different outcome. The only thing we can say for sure about HM Treasury’s predictions is that – whatever happens to the UK after Brexit – it will notbe what Philip Hammond and his cronies think.

Instead the vast majority of Leave voters and many Remainers too, are looking forward to Britain as a successful global trading nation, which is just what we always used to be. The EU is based on a protectionist, one-size-fits-all Customs Union from which we absolutely must escape. Only then can we lower prices to the consumer, drive an export-led recovery and help the developing world out of poverty.

Labour Leave shares a number of viewpoints from external commentators, both Leave and Remain, without necessarily endorsing any of the viewpoints therein.